NEW YORK (Reuters) - In the latest setback for biofuels
producers, a Nebraska ethanol plant powered by a gas derived
from cow manure filed for bankruptcy last Friday, court records
show.

E3 Biofuels-Mead LLC, filed for bankruptcy on Friday in
U.S. Bankruptcy Court for the District of Kansas.

The company's plant in Mead, Nebraska suffered an explosion
in a boiler earlier in the year. That kept the 25 million
gallon per year plant running only at about half capacity, a
source close to the plant's operations said in an interview. He
said the plant has shut until it can get finances in order.

E3 billed the plant as environmentally friendly because it
provided its own fuel from cow manure. It made ethanol from
corn and fed the crop waste to 28,000 cows on site. Then it
made a biogas from the manure, of which it had large supplies,
obviating the need for outside natural gas or coal to fire the
plant.

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The novel "closed loop" system worked, the source said, but
the operation never recovered from the explosion.

"The shame of it is that the boiler had had an explosion
which is just a purely mechanical issue in making ethanol,
which has been known since the 1920s," said the source. He said
that the company was making 25 percent more gas than the plant
needed.

Miserable margins for making the alternative fuel have
delayed plans for several ethanol plants this autumn. While
corn prices are roughly double what they were last year, this
year's boom in ethanol capacity, of about one third to more
than 7.2 billion gallons per year, has glutted supply of the
renewable fuel and kept prices low, analysts say.

VeraSun's 110 million gpy Reynolds, Indiana plant, Glacial
Lakes Energy's in South Dakota, and Chippewa Valley Ethanol
Co's 40 million gpy expansion of its biorefinery in Minnesota
all postponed plans this fall.

E3 did not return phone calls asking when it planned to
come back up. The bankruptcy documents showed it had 200 to 999
creditors and liabilities of up to $100 million.

"They just need more time to fix their plant," said the
source, adding that bad credit markets also made the business
tough.